Japan's Nikkei Stock Average has surged past the 70,000 mark, driven by strong global demand for technology and auto shares, signaling robust performance among large exporters and multinational corporations [1]. However, this market boom has not translated into improved conditions for small and medium-sized enterprises (SMEs), which make up the majority of Japan's economy [1]. Yasuhisa Hirohama, head of copper alloy manufacturer Yamato Gokin, highlights the 'enormous gap' between soaring stock prices and the challenges faced by SMEs, including persistent inflation, higher input costs, and weak pricing power [1].
While headline economic data points to growth, the divide between thriving export-led companies and struggling local businesses has become more pronounced [1]. SMEs are being squeezed by increased costs for raw materials, energy, and labor, which they are unable to pass on to customers due to competitive pressures from larger firms [1]. Market analysts note that about 70% of Japanese workers are employed by SMEs, many of which are struggling to survive despite the Nikkei's rally [1]. The Bank of Japan's Tankan survey continues to show a gap in business sentiment between large manufacturers and small non-manufacturers [1].
Labor shortages are compounding the difficulties for SMEs, forcing some to raise wages or reduce operations, further eroding already thin profit margins [1]. Persistent inflation and a weak yen are driving up import costs for materials and fuel, but many small firms lack the bargaining power to raise their own prices, leaving them vulnerable even as Japan's GDP and stock market reach new highs [1].
Economists warn that unless wage growth and domestic demand pick up more broadly, the economy will remain divided, with the risk that the gap between large exporters and smaller domestic-facing businesses will continue to widen [1].
CONCLUSION
Japan's record-breaking stock market rally highlights a growing divide between large exporters and the majority of small businesses, which continue to struggle with inflation, labor shortages, and weak pricing power. Without broader-based wage growth and domestic demand, the two-speed economy is likely to persist, posing risks to Japan's overall economic health.